Credit card issuers continue to focus on spending rather than lending

Leading U.S. credit card issuers reported consistent trends in their second quarter 2011 financials.

  • Declines in charge-off and delinquency rates.  Each of the leading issuers reported very strong declines in net charge-off rates, with three (Capital One, PNC and Wells Fargo) reported declines of more than 100 basis points from the previous quarter.  Most of the leading issuers now have charge-off rates below 6%, with American Express unsurprisingly having by far the lowest rate, at 3.2%.  There is a similar trend for 30+ and 90+ day delinquency rates, with all issuers reporting strong y/y and q/q declines.

  • Growth in spending volume.  All of the leading issuers that published data on credit card purchase volume reported year-on-year growth (quarter-on-quarter trends are not very useful due to the seasonal nature of spending).  Although the American Express U.S. Cards unit has by far the largest spending volume among leading issuers, it also has the strong y/y growth rate in 2Q11, at 13%.  Chase, Discover and U.S. Bank all reported 9% y/y growth rates.  Citihad relatively low growth, at 1.5%, but it is worth noting that, unlike other issuers, Citi’s card spend continued to decline in 2010.  It reported growth in 1Q11 (of 0.3%) for the first time since the second quarter of 2008.
  • Falling outstandings.  As yet, the improved credit quality metrics and rising purchase volumes have not translated into increased credit card outstandings.  This appears to be a result of cardholder deleveraging (increasing payment rates to reduce their card debt).  The following charts summarize the change in outstandings between 1Q11 and 2Q11, as well as the cumulative change since the start of 2009.

At least two of these three trends appear set to continue in the coming quarters.  Most issuers expect charge-off and delinquency rates to decline in 3Q11.  In addition, most issuers are aggressively promoting increased card spend, so we are seeing large bonus point offers for initial purchases, incentives to continue to use cards, and bonus rewards for spending in particular categories (where credit card has traditionally had low payment share).  There may be a change in the downward trend in card outstandings, but this will be mainly dependent on a shift in customer perceptions of the health of both the economy and their own finances.

Credit card issuer quarterly scorecard: improved credit quality; volume growth; lending declines

In the latest quarterly financials, the leading U.S. credit card issuers displayed consistent trends in credit quality, purchase volumes and card loans.

  • Credit quality: issuers continued to report strong yearly and quarterly declines in charge-off rates.  The current rate of decline, as well as the high rates of decline in delinquency rates, indicate that charge-off rates will fall further in the next few quarters.

  • Purchase volume: All leading credit card issuers are growing purchase volumes year-on-year, with four issuers reporting double-digit volume growth. In addition, issuers like Chase and Capital One have accelerated volume growth in recent quarters.  In 1Q11, Citi reported a small y/y rise of 0.3%, which followed a protracted period of volume decline.  The 7 issuers listed in the chart had a combined $321 billion in purchase volume, up 9% y/y.


  • Average Outstandings: Although issuers have been effective in growing purchase volume, average outstandings for all leading issuers continued to decline year-on-year in 1Q11.  The 8 issuers combined for $515 billion in average outstandings in the quarter, down 18% from 1Q10.  The rate of decline slowed in 1Q11, with combined outstandings for the 8 issuers down 1.4% from 4Q10.  And Discover reported 1.7% quarterly growth in average outstandings.  Many issuers have reported that they expected outstandings to grow in the second half of 2010.